1. Sun City Ltd commences construction of a multi purpose water park on 1 July 2022 for Pretoria Ltd. Sun City Ltd signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2025 and Pretoria Ltd controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project – in this example, they do change. The following data relates to the project (the financial years end on 30 June): Particulars 2023($m) 2024 ($m) 2025($m) Costs for the year 10 18 12 Costs incurred to date 10 28 40 Estimated costs to complete 28 12 - Progress billings during the year 12 20 18 Cash collected during the year 11 19 20 Prepare the journal entries for the 2023 financial year, assuming that the measure of progress on the contract cannot be reliably assessed. Independently of the above three parts of this exercise, prepare the journal entries for the 2023 and 2024 financial years, assuming that the revised costing data, as shown below, indicates that, overall, the contract will make a loss of $2 million. The revision is due to the fact that, during the year ending 30 June 2024, it becomes apparent that the creation of the water park has damaged the local ecosystem and the damage must be rectified immediately at Sun City Ltd’s expense. Particulars 2024 ($m) Costs for the year 18 Total costs incurred to date 28 Estimated costs to complete 24 Progress billings during the year 20 Cash collected during the year 19

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Sun City Ltd commences construction of a multi purpose water park on 1 July 2022 for Pretoria Ltd. Sun City Ltd signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2025 and Pretoria Ltd controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project – in this example, they do change. The following data relates to the project (the financial years end on 30 June):

Particulars	2023($m)	2024 ($m)	2025($m)
Costs for the year	10	18	12
Costs incurred to date	10	28	40
Estimated costs to complete	28	12	-
Progress billings during the year	12	20	18
Cash collected during the year	11	19	20

Prepare the journal entries for the 2023 financial year, assuming that the measure of progress on the contract cannot be reliably assessed.

Independently of the above three parts of this exercise, prepare the journal entries for the 2023 and 2024 financial years, assuming that the revised costing data, as shown below, indicates that, overall, the contract will make a loss of $2 million. The revision is due to the fact that, during the year ending 30 June 2024, it becomes apparent that the creation of the water park has damaged the local ecosystem and the damage must be rectified immediately at Sun City Ltd’s expense.

Particulars	2024 ($m)
Costs for the year	18
Total costs incurred to date	28
Estimated costs to complete	24
Progress billings during the year	20
Cash collected during the year	19

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